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Non-performing loans and financial development: new evidence

Author

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  • Peterson K. Ozili

Abstract

Purpose - This paper aims to investigate the influence of financial development on non-performing loans (NPL). Design/methodology/approach - The model used in this study follows the NPL model of Louziset al.(2012), Ozili (2015) and Becket al.(2015). Findings - The findings indicate that financial development, measured as foreign bank presence and financial intermediation, are positively associated with NPLs. Also, bank efficiency, loan loss coverage ratio, competition and banking system stability are inversely associated with NPLs, while NPLs are positively associated with banking crises and bank concentration. In the regional analysis, NPLs are negatively associated with regulatory capital and bank liquidity, implying that banking sectors with greater regulatory capital and liquidity experience fewer NPLs. Practical implications - National bank regulators/supervisor should not only consider the role that financial development structures play in influencing aggregate NPLs but also ensure that thorough supervision of the lending practices of banks is in place as well as the active monitoring of the financial intermediation process in the country. Originality/value - The study is the first to use a global sample to examine the direct relationship between NPL and financial development.

Suggested Citation

  • Peterson K. Ozili, 2019. "Non-performing loans and financial development: new evidence," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 20(1), pages 59-81, January.
    • Handle: RePEc:eme:jrfpps:jrf-07-2017-0112
    DOI: 10.1108/JRF-07-2017-0112
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    More about this item

    Keywords

    Foreign banks; Credit risk; Financial intermediation; Financial development; Non-performing loans; Asset quality; G28; G32; F34; O16; E44; G01; G21;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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